A quiet contradiction is emerging at the heart of the global aviation carbon market. Under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), airlines are required to purchase eligible carbon credits backed by host-country approval through Letters of Authorisation and corresponding adjustments. Yet an increasing share of credits is now being sold under insurance-backed structures before those approvals are secured.
The rationale is straightforward: supply is constrained, and regulatory processes are slow. Insurance offers a way to bridge that gap.
But this approach risks exposing a deeper structural flaw — one that extends beyond financial engineering and into the design of the system itself.
A supply problem rooted in sovereignty
The shortage of authorised credits is often framed as administrative delay. In reality, it reflects a more fundamental issue: many host countries are reluctant to grant approvals.
This hesitation is not irrational. In numerous cases, governments were not meaningfully involved in the early development of carbon projects now seeking authorisation under Article 6 of the Paris Agreement. Granting corresponding adjustments today may reduce their ability to meet national climate targets, empowering their local communities and, last but not the least, to participate to the financial proceeds generated by the carbon projects. The result is predictable. Countries proceed cautiously — or not at all.
When compliance is penalised
At the same time, examples are emerging of jurisdictions attempting to build more robust, sovereign-aligned systems.
Zimbabwe has developed a framework in which carbon credits pass through a national registry, allowing the government to issue Letters of Authorisation and apply corresponding adjustments at the point of transfer. In principle, this aligns closely with the intent of Article 6. However, this approach runs into procedural constraints within CORSIA.
Under rules shaped by the International Civil Aviation Organization (ICAO) and its Technical Advisory Body (TAB), eligible credits must be transferred through approved standard registries such as Gold Standard or Verra. Direct transfers from national registries are not recognised.
This creates a paradox. A more sovereign, Article 6–aligned pathway becomes operationally incompatible with the compliance system it is meant to serve.
A case that illustrates the tension
In one documented instance, credits issued under Gold Standard were transferred to Zimbabwe's national registry, where they were accounted for in the country's climate targets and granted both authorisation and corresponding adjustments. The credits were subsequently transferred back to the standard registry for trading.
Despite completing what appears to be the full compliance cycle, the credits, at the moment of the writing of this article, were no longer considered eligible under CORSIA following guidance associated with the Technical Advisory Body (TAB).
The implication is difficult to ignore: credits that satisfy the substance of the rules may fail on procedure.
Insurance fills the gap — imperfectly
Against this backdrop, insurance-backed credit sales have gained traction. These structures allow developers to monetise credits before authorisation, with insurance covering the risk of non-approval. Yet the protection is often asymmetric. Developers are insulated, while airlines — which ultimately bear compliance obligations — may remain exposed if credits are invalidated. This raises questions about whether the model mitigates risk or merely redistributes it.
Maintaining momentum over resolving constraints
If the system exhibits such tensions, why does it continue to attract support from key institutions, including the Technical Advisory Body (TAB), Sylvera, Verra and Gold Standard?
Part of the answer may lie in the need to sustain market function. A prolonged shortage of eligible credits would undermine the credibility of CORSIA itself. Mechanisms that maintain liquidity — even imperfectly — help avoid that outcome.
However, there is a risk that in prioritising continuity, the system tolerates inconsistencies that may prove destabilising over time.
A system under strain
CORSIA remains a significant step in global climate governance. But its current trajectory suggests a market evolving faster than its institutional foundations.
- Countries are cautious about granting approvals
- Fully authorised pathways can be procedurally excluded
- Credits lacking approval are nevertheless entering the market via insurance
The result is a system in which form and substance are increasingly misaligned.
If these tensions persist, the challenge will not simply be one of supply. It will be one of credibility.
